US Dollar Index retreats towards 102.00 as Treasury bond yields dwindle

• US Dollar Index fades the week-start rebound from the lowest levels since June 2022.
• US Treasury bond yields struggle for clear directions amid mixed clues about Fed policy pivot.
• Long weekend in the US markets also allowed DXY to lick its wounds before recalling the bears.
• China Q4 GDP, US Retail Sales for December are the key for US Dollar Index watchers.

US Dollar Index (DXY) fails to extend the week-start recovery moves, easing back to 102.30 during the early hours of Tuesday, as full markets probe US Treasury bond sellers amid easing fears of high inflation and concerns surrounding the US “soft landing”.

That said, the benchmark US 10-year Treasury bond yields seesaw around 3.525% after extending the bounce off the one-month low the previous day. It’s worth noting that the two-year US bond coupons remain indecisive at around 4.25% by the press time.

The greenback’s gauge versus the six major currencies might have cheered Friday’s upbeat prints of the Michigan Consumer Sentiment Index (CSI) and 5-year inflation expectations to bounce off a multi-day low the previous day. However, China-inspired market optimism and concerns surrounding easing inflation fears, as per the latest US Consumer Price Index (CPI) and figures relating to wages and activities, seemed to have probed the DXY rebound.

Also challenging the US Dollar Index recovery could be the cautious mood ahead of China's Gross Domestic Product (GDP) for the fourth quarter (Q4) and the US Retail Sales for December, up for publishing on Tuesday and Wednesday respectively.

Amid these plays, S&P 500 Futures retreat from a one-month high, down 0.20% intraday near 4,009 at the latest. It’s worth noting that the equities in Europe and the UK managed to close with mild gains on Monday, which in turn probe DXY bulls.

Looking forward, a light calendar may test DXY traders even as the return of the full markets could portray US Dollar Index moves. That said, China's Q4 GDP is expected to print a contraction and can allow the greenback to defend the latest gains. However, any positive surprise could exert more downside pressure on the DXY amid Beijing-inspired optimism in the market, as well as due to the dovish concerns surrounding the Fed. Following that, a likely improvement in the US Retail Sales for December may also help the DXY to pare the monthly loss in case of an upbeat outcome.

Technical analysis

A one-month-old bearish channel, currently between 101.45 and 104.65, keeps US Dollar Index sellers hopeful.